RNS Number:5384I
AFA Systems PLC
11 March 2003
Tuesday, 11 March 2003
AFA Systems plc
Preliminary results for the year ended 31 December 2002
AFA Systems plc, the AIM listed provider of software solutions
for global financial markets, today announced its preliminary
results for the year ended 31 December 2002.
Highlights
* As anticipated in our year end trading update on 24
December 2002, turnover decreased to #6.0m (2001: #8.1m) due to
tough market conditions and resulting lack of new product sales
* Group operating losses before exceptional items and
goodwill amortisation of #2.4m (2001: #0.5m) included impact of
#0.6m investment in our international asset management sales
team during the year
* Group losses before tax reduced to #10.6m (2001: #14.6m)
after exceptional items and goodwill amortisation of #8.3m
(2001: #14.2m)
* First sales of investment management products outside
South Africa
* Cost reduction programme implemented during the second
half of 2002 to accelerate elimination of losses should deliver
annualised cost savings of approximately #1.0m in 2003
* Transfer to AIM in January 2003
* Alliance with London Bridge Software Holdings plc ("London
Bridge")
* London Bridge acquired 8.2% of AFA as part of a placing in
January 2003 to raise #2.0m (#1.8m net of expenses)
Mike Hart, Chairman & Chief Executive, commented:
"We have made significant progress in developing AFA's business
and market position.
"The recent share issue will enable us to continue development
of AFA during recession and to position it to take advantage of
an upturn, whilst reducing the financial concerns of existing
and potential customers by strengthening our balance sheet.
"Together with the benefit of last year's cost reduction
programme and the increase in the Group's recurring revenues
and business from its installed customer base, our aim in the
current financial year is to eliminate our operating loss."
For further information, please contact:
AFA Systems plc www.afa-systems.com
Mike Hart, Chairman & Chief Executive 020 7337 7250
Henry Sallitt, Finance Director
Weber Shandwick Square Mile
Reg Hoare/Sara Musgrave 020 7067 0700
CHAIRMAN'S STATEMENT
When we reported on our 2001 results, we stated that the period
was one of the weakest ever for the sales of software products
particularly into the financial services sector.
There was held a genuine view that 2002 would see some limited
improvements. Clearly as the year progressed this has proved
not to be the case. The continued decline in world stock
markets and the general lack of confidence in the finance
sector has led to further cost reductions that have included
lowering or deferring capital expenditure on new systems.
Despite the tough market conditions, the Group has had another
year of progress in terms of building its business for the
future. A number of key milestones have been achieved which
can be summarised as follows:
* successful integration of acquisitions made in 2001
* continued investment in our products with new product launches
* investment in marketing and sales including an international
asset management sales team
* new distribution agreements signed
* successful product implementations at core reference sites
* revenues from existing Musketeer customers grown
* international product applicability demonstrated with
sales of all products to new territories
These milestones are reviewed in more detail in the sections
below.
The Business
AFA Systems develops, implements and supports a broad range of
integrated financial software solutions that enable banks,
institutional investors and financial intermediaries to manage,
trade, invest and monitor their financial assets competitively
and reduce costs. To date, more than 100 financial
institutions across 20 countries around the world have invested
in our systems.
Strategy
The Group's strategy has been to complement its organic
software product development with strategic acquisitions of
software products for global financial markets. This strategy
is supported by low cost offshore development backed by a
strong management team.
Due to the uncertainties in financial markets, during the year
the Board undertook a strategic review to establish its way
forward. As we have stated in the past, we believe that there
is a strong need for consolidation in our industry and a number
of options were considered. Many of these were closed to us
given the sharp fall in the stock market and the route chosen
was to ensure that the Group remained financially robust whilst
continuing to invest in its business.
We were therefore delighted to announce an agreement with
London Bridge in December 2002 through which they became a
cornerstone investor as part of a #2.0 million fund raising
being undertaken at that time. This fund-raising was completed
on 30 January 2003 and was accompanied by a move of the
Company's entire issued share capital from the Official List to
AIM. In addition we also created a strategic alliance between
our two companies, which is discussed further below.
Results
Group revenues for the 12 months to 31 December 2002 decreased
to #6,013,000 (2001: #8,136,000), reflecting the difficult
trading conditions that persisted throughout the financial
year. As anticipated in the pre year end trading statement and
in the circular to shareholders dated 8 January 2003, second
half revenues were similar to those experienced in the first
half. Both as a result of this reduction in revenues and also
the #0.6 million investment in a sales and marketing team for
its asset management range of products, the Group incurred an
operating loss before exceptional items and goodwill
amortisation of #2,376,000 (2001: #536,000).
The acquisition of Dart was completed in April 2000 on a share
for share exchange, when the AFA share price stood at 640p,
creating goodwill of #26.5 million. Since then there has been
a substantial and continuous repositioning of share prices in
AFA's sector. Having recognised in 2001's accounts an #11.0
million impairment of the carrying value of this goodwill, the
Board has now recognised a further impairment totalling #6.0
million in 2002. The Board continues to be pleased with the
underlying performance of Dart since its acquisition despite
continued tough trading conditions. The recurring goodwill
amortisation in respect of this and goodwill created on the
acquisition of Smacsoft in February 2001 is #2.0 million for
2002 (2001: #3.2 million) and will be #1.2 million in 2003.
In response to the difficult conditions, we successfully
implemented a cost reduction programme in the second half of
2002 that should result in annualised cost savings of
approximately #1.0 million being achieved, the benefits of
which will principally be derived in 2003. At the same time we
reorganised our South African activities into one location in
Cape Town. As a result of these changes, we incurred total
restructuring charges of #338,000 in the second half of the
year (made up of #202,000 of staff costs and #136,000 of
relocation costs). These have been treated as operating
exceptional items. We monitor our costs against expected
revenue levels on a continuous basis.
Losses after tax of #10.7 million (2001: #14.6 million) are
stated after operating exceptional items and goodwill
amortisation of #8.3 million (2001: #14.2 million).
Adjusted losses per share, reflecting the trading activities of
the Group and more fully described in note 2, were 9.3 pence
compared with a loss per share of 1.7 pence in the same period
last year.
At the year-end the Group had a net cash position of #0.9
million and net current assets of #1.0 million including
deferred revenue of #0.6 million. As mentioned above the
Company completed a fund-raising in January 2003, raising #1.8
million, net of expenses. When stated to include the receipt
of these funds net of expenses, pro forma net cash stood at
#2.7 million and net current assets at #2.8 million.
The Board is not recommending the payment of a dividend.
The Market
The market for our products has for the second consecutive year
been very difficult due to the global economic and stock market
slowdowns which have led to a lengthening of sales cycles and a
number of project delays with no significant improvement seen
in the second half of last year or in the current financial
year to date. As has been widely reported, the financial sector
continued to suffer from low levels of investment in new
systems throughout the year as it struggled to sustain its own
profitability.
However, we continue to believe that over the medium term
financial institutions must invest in systems in order to
create competitive advantage and achieve reductions in
administrative costs. In order to position the Group for this
we strengthened our sales and marketing resource during the
year with an investment in an international asset management
sales team. This continued investment means we have a stronger
presence in our chosen markets than at any time in our history
and at a time when many competitors have had to cut back. We
are therefore better positioned than ever to take advantage of
any upturn.
Alliance with London Bridge
In line with our strategy to continue the development of the
Group during the current recession and to position ourselves
for the upturn, AFA entered into an Alliance with London Bridge
in December 2002. The Alliance includes a Reseller Agreement
and an Infrastructure Agreement that allow AFA to continue to
increase sales opportunities whilst giving London Bridge a fast
start to create its own low cost offshore development facility.
The Reseller Agreement is indicative of AFA's objective to
increase its sales by widening its distribution channels and
will allow London Bridge to sell AFA's treasury and asset
management products. These modules will be integrated into
their Phoenix Banking System to deliver a fully integrated
retail and wholesale banking product.
The Infrastructure Agreement will give London Bridge the
opportunity to use AFA facilities and infrastructure to create
its own low cost development centre in South Africa. Under the
terms of the Agreement, AFA will facilitate the fast start and
operation of the facility in Cape Town.
As an indication of its commitment to the Alliance, London
Bridge acquired 8.2% of the enlarged issued share capital of
AFA at a cost of #0.5 million, as part of the #2.0 million fund
completed in January 2003.
Distribution Agreements
During the year we signed two distribution agreements, one as
part of our Strategic Alliance with London Bridge (as referred
to above) and the other with ABC Professional Services S.A. who
signed as an AFA Systems' exclusive regional distributor in
Greece and Cyprus. The distribution agreement covers a number
of AFA's asset management solutions. ABC, established in 1982,
was among the first suppliers of financial systems in the Greek
market and is one of the leading suppliers of banking,
accounting, investment management, treasury management, risk
analysis and general financial software solutions. As
previously announced, the first sale through this channel was
completed in July 2002 and is now running live.
Our other distribution agreements, including that with ITS, a
major provider of systems to the banking market in 12 middle
eastern countries, continue to perform in line with our
expectations and are fundamental to our strategy to increase
international sales at a time when the traditional markets of
the US and Europe are struggling.
Product Development
The majority of the Company's products continue to be developed
in South Africa, taking advantage of its very substantial cost
advantages. This has allowed us to maintain product
development at high levels despite the recession and positions
AFA to drive organic growth as the market improves.
We estimate the cost of development in South Africa to be
approximately 20% of that in the UK. The last twelve months
however have seen a significant strengthening of the South
African Rand versus Sterling. This is substantially offset by
the Group's South African Rand earnings. In 2002 the Group had
South African Rand costs of ZAR52.7 million and revenues of
ZAR34.3 million. It is not the Group's policy to hedge this
exposure.
During the year, we relocated our Johannesburg capabilities to
Smacsoft's existing Cape Town development centre where all our
South African activities are now located. A further 70 man-
years of additional development was invested in the Group's
products, none of which is capitalised under the Group's
accounting policies. We will continue to enhance our products
in the current year to ensure we maintain our competitive edge
and position our products for when the market returns.
The Board
As was reported at the time of the Group's interim results in
September 2002, Jon Letts, an Executive member of the Board,
left the Company on 15 August 2002. It is not envisaged that
he will be replaced at this time, and existing senior members
of staff, reporting to the Chief Executive, are now undertaking
his duties.
Eddie Robinson, a non-executive director since the Company's
flotation on AIM in July 1996, retired from the board as of 30
September 2002. We are grateful for his contribution to the
development of the Group.
Staff numbers fell from 168 to 136 during the year, as a result
of the rationalisation undertaken in the autumn, of whom 91 are
based in South Africa. We would like to thank them all for
their hard work and commitment to the Group.
Transfer to AIM
In December 2002 we applied to the UK Listing Authority for the
transfer of the Company's entire issued ordinary share capital
from the Official List to AIM. The shares simultaneously de-
listed from the Official List and commenced trading on AIM on 8
January 2003.
The Board believe that the Group will benefit from this change
as AIM is less regulated than the Official List and provides a
greater degree of flexibility to small companies at a time of
depressed stock markets.
Current Trading and Outlook
Throughout the current downturn and despite the lack of closure
of new sales, AFA has continued to enjoy high enquiry levels
and a strong sales pipeline as evidenced by being short-listed
for a number of large projects in our chosen sectors. With over
100 customers in 20 countries, our underlying business
operations continue to perform well with successful product
implementations, product launches and acquisition integration
undertaken during one of the toughest years on record for our
sector.
Whilst market conditions have substantially impeded sales
growth compared to our previous expectations and objectives,
over the last 3 years we have nonetheless succeeded in building
up by acquisition and organic growth a strong portfolio of
internationally applicable products in the banking and
investment management industries. We therefore believe that the
Group has made significant progress in developing its business
and market position during this time.
The recent share issue will enable us to continue development
of AFA during recession and to position it to take advantage of
an upturn, whilst reducing the financial concerns of existing
and potential customers by strengthening our balance sheet.
Together with the benefit of last year's cost reduction
programme and the increase in the Group's recurring revenues
and business from its installed customer base, our aim in the
current financial year is to eliminate our operating loss.
Mike Hart
Chairman & Chief Executive 11 March
2003
GROUP PROFIT AND LOSS ACCOUNT
For the year ended 31 December 2002
2002 2001
Notes #000 #000
Turnover 6,013 8,136
Staff costs (6,415) (5,917)
Depreciation and other amounts written off
tangible and intangible assets (8,175) (14,396)
------------- ------------
Other external charges (2,117) (2,554)
Operating loss - continuing operations (10,694) (14,731)
Operating loss excluding exceptional items
and goodwill amortisation (2,376) (536)
Goodwill amortisation (1,980) (3,195)
Exceptional goodwill impairment (6,000) (11,000)
Exceptional operating costs (338) -
------------- ------------
Operating loss - continuing operations (10,694) (14,731)
Interest receivable 57 135
Interest payable (1) (23)
------------- ------------
Loss before taxation for the financial year (10,638) (14,619)
Tax on loss on ordinary activities (38) (6)
------------- ------------
Loss after taxation for the financial year (10,676) (14,625)
============= ============
Basic loss per ordinary share 2 (42.0p) (58.5p)
============= ============
Adjusted basic loss per ordinary share 2 (9.3p) (1.7p)
============= ============
Diluted loss per ordinary share 2 (41.9p) (56.9p)
============= ============
GROUP BALANCE SHEET
as at 31 December 2002
2002 2001
#000 #000
--------------------------------------------------------------------------------------
Fixed assets
Intangible assets 9,343 17,286
Tangible assets 413 369
--------------------------------------------------------------------------------------
9,756 17,655
--------------------------------------------------------------------------------------
Current assets
Debtors 1,644 3,340
Cash at bank and in hand 861 2,147
--------------------------------------------------------------------------------------
2,505 5,487
Creditors: amounts falling due
within one year (1,498) (1,697)
--------------------------------------------------------------------------------------
Net current assets 1,007 3,790
--------------------------------------------------------------------------------------
Total assets less current liabilities 10,763 21,445
--------------------------------------------------------------------------------------
Net assets 10,763 21,445
--------------------------------------------------------------------------------------
Capital and reserves
Called up share capital 6,002 5,922
Share premium account 11,409 11,407
Share capital to be issued 353 420
Merger reserve 5,150 12,794
Profit and loss account (12,151) (9,098)
--------------------------------------------------------------------------------------
Equity shareholders' funds 10,763 21,445
--------------------------------------------------------------------------------------
RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
for the year ended 31 December 2002
2002 2001
#000 #000
--------------------------------------------------------------------------------------
Loss for the financial year (10,676) (14,625)
Shares issued for cash net of expenses 15 80
Shares issued for acquisitions - 3,773
Key Executives' Reward Plan - 55
Foreign exchange loss (21) (645)
--------------------------------------------------------------------------------------
Net decrease in shareholders' funds (10,682) (11,362)
Equity shareholders' funds brought forward 21,445 32,807
--------------------------------------------------------------------------------------
Equity shareholders' funds carried forward 10,763 21,445
--------------------------------------------------------------------------------------
GROUP CASH FLOW STATEMENT
for the year ended 31 December 2002
2002 2001
#000 #000
-------------------------------------------------------------------------------------
Net cash outflow from operating activities (1,022) (570)
Returns on investments 56 112
Taxation Paid (19) (53)
Capital expenditure (187) (16)
Acquisitions - (3,158)
-------------------------------------------------------------------------------------
Cash outflow before management of liquid
resources and financing (1,172) (3,685)
Management of liquid resources 458 3,947
Financing 15 (256)
-------------------------------------------------------------------------------------
(Decrease)/increase in cash in period (699) 6
-------------------------------------------------------------------------------------
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash in period (699) 6
Cash inflow from decrease in liquid resources (458) (3,947)
-------------------------------------------------------------------------------------
Change in net funds arising from cash flows (1,157) (3,941)
Effect of foreign exchange differences (129) (618)
-------------------------------------------------------------------------------------
Change in net funds (1,286) (4,559)
Opening net funds 2,147 6,706
-------------------------------------------------------------------------------------
Closing net funds 861 2,147
-------------------------------------------------------------------------------------
Notes
1.This report has been prepared on a basis consistent with
the accounting policies stated in the financial statements for
year ended 31 December 2002. During the year, the Group has
adopted FRS19 (Deferred Tax). This has had no impact on either
the current or preceding year's results.
2.The calculations of the loss per ordinary share are based
on the following: -
Loss per share
2002 2001
Adjusted basic loss per share before
exceptional items and goodwill amortisation (9.3p) (1.7p)
Effect of exceptional items and goodwill
amortisation (32.7p) (56.8p)
------------- -------------
Basic loss per share (42.0p) (58.5p)
============= =============
Earnings #000 #000
Earnings for adjusted loss per share calculation (2,358) (430)
Operating exceptional items (6,338) (11,000)
Goodwill amortisation (1,980) (3,195)
------------- -------------
Earnings for basic loss per share calculation (10,676) (14,625)
============= =============
Number of shares Million Million
Weighted average number of shares used in
basic loss per share calculation 25.40 24.99
Dilutive effect of options 0.08 0.73
------------- -------------
Weighted average number of shares used in
diluted loss per share calculation 25.48 25.72
============= =============
The weighted average number of shares used in the basic loss
per share calculation included all shares issued or to be
issued in connection with the acquisition of Smacsoft Group
Limited as if issued on the day of acquisition.
3.No dividend has been declared for the year ended 31
December 2002
4.The comparative results for the year ended 31 December
2002 are not the company's statutory accounts for that
financial year. Those accounts have been reported on by the
company's auditors and delivered to the Registrar of Companies.
The report of the auditors was unqualified and did not contain
a statement under section 237 (2) or (3) of the Companies Act
1985.
5.The final results for the year ended 31 December 2002 will
be posted to shareholders before 25 April 2003. Copies of this
document are available from the company's registered office,
Bury House, 31 Bury Street, London, EC3A 5AR.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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